MAC: Mines and Communities

Themes

The relevance of KPC to Rio Tinto

Published by MAC on 2001-05-01

The relevance of KPC to Rio Tinto

Cheap the coal from Kaltim may be - and it's certainly profitable to mine (even though, in 1997-98 KPC's returns on assets fell, reducing Rio Tinto's income from the mine by nearly one third (19% to 13%) [Rio Tinto: Tainted Titan - The Stakeholders Report 1997, ICEM and others, Brussels 1998]. One critical question - with considerable political and economic ramifications - is whether KPC will expand its output even further (not simply its "life") by sealing new contracts. The domestic share of production could rise, once Tambang Timah confirms its substantial stake in the company. Is the mine likely to make new deals with customers in Southeast Asia (for example Malaysia), or substitute for existing contracts (to Europe or Japan) concluded with Australian mines? During 1997-1998, as the CFMEU - the main coal miners union in Australia - fought a major battle with Rio Tinto to retain union control over pits in the Hunter Valley (New South Wales), so the company began hinting that it could fulfil future contracts from outside the country. Rio Tinto has already become one of the world's most prominent private suppliers of coal (through aggressive expansion in the USA in particular).

Perhaps its closest industry rival is BHP - Australia's biggest "natural resource" company which, earlier this year, was granted two third generation COWs to exploit coal in Kalimantan [Jakarta Post April 20 1999]. The two companies nonetheless co-operate closely elsewhere – sharing in output from the world's biggest single copper mine (Escondida, Chile), and being currently (June 1999) on the brink of an agreement to merge their vast iron ore mines in Australia [Mining Journal June 18 1999, Australian Financial Review, June 11 1999]. Ironically, one of the hesitations expressed by BHP over this merger is that its unionised workforce would come out on strike, in protest at being forced to join with Rio Tinto's largely de-unionised workforces in Australia. Although currently quite hypothetical (both the Indonesian government and BP might strongly object), such an alliance would comprise the world's biggest single private coal producer.

Although KPC's COW has another thirteen years to run, any further expansion from now on should - at the very least - attract a new contract which will partly redress the balance between profits that go offshore and value that should remain within Indonesia. It is not the purpose of this paper to debate what proportion of royalties should accrue to district or provincial administrations, as distinct from the central government (a debate which is being conducted with some force inside

Indonesia and is overlaid by calls for autonomy, and even independence, within some provinces, including East Kalimantan) Arguably this has become a vapid and irrelevant discussion for some communities, such as those in Sangatta, whose habitation preceded mine construction, and which have suffered most since, from discrimination, deprivation and derisory compensation. But at the very least, the original KPC COW should be hauled out, pored over, and renegotiated.

Equally important, I suggest, is for Indonesia's democratic, pro-Indigenous, Indigenous and ecological associations and NGOs, to determine a cohesive policy on the role that coal extraction could now play in the re-shaping of local economies, on the whole nature of industrialisation, and on empowerment (in both a literal and figurative sense) of the villages. While the total estimated reserves of Indonesia (at 36 billion tonnes) sound impressive, they constitute just fifteen times global coal use in 1997 [MAR op cit] - which met 27% of world energy demand that year. And, if the most recent industry estimates can be credited, these reserves comprise only one fifth of predicted global demand (an estimated 7.3 billion tonnes) in the year 2015 [Coal-Use Technology in a Changing Climate Financial Times Energy publications, London, 1999].

At the same time, the Financial Times predicts that global carbon emissions from coal, between 1999 and 2015 will grow to a massive 2.7 billion tonnes a year. As the world's fifteenth biggest coal producer, Indonesia's contribution to deleterious climate change is already significant. Rapid expansion of the country's coal - and of course oil production - will increase this contribution alarmingly. Moreover, according to a recent report on global coal prospects, Indonesian mines in particular are faced with higher stripping ratios - which means increased ecological costs at the "front end" of the production process (particularly in the dumping and treatment of overburden) [AME Mineral Economics, Coal operating costs to 2003 Sydney 1998].

So long as foreign companies are the main hewers of the coal, and the beneficiaries of its sales, the moral responsibility for adding to this global damage lies squarely with them. It cannot be assuaged merely by the sponsoring of a national park, or the planting of a few thousand – or hundred thousand - trees as a minor "carbon sink" (see footnote* below). Certainly the claim that they are blessing the world with an "enviro" product is fraudulent.